Even if General Motors and Chrysler obtain billions more in government loans, the threat of bankruptcy remains high for the troubled automakers, analysts warned.
“Despite the extension of considerable emergency funding to GM and Chrysler and their finance arms, we continue to see a high risk of a Chapter 11 (bankruptcy) filing by one or more of the US auto makers,” Bruce Clark of Moody's Investors Service said.
Moody's, a credit rating agency, estimated the likelihood of an “orderly” bankruptcy protection filing backed by the government at 70 percent.
GM and Chrysler insist they can return to profitability if the US Treasury extends up to 21.6 billion dollars in additional loans on top of the 17.4 billion approved in December. That would bring GM's total to 30 billion and Chrysler's to nine billion.
In detailed, long-term viability plans submitted to the Treasury Tuesday, they warned that the cost of doing nothing would be far higher.
GM placed the tab of restructuring through bankruptcy at 100 billion while Chrysler said it would need 24 billion.
Both said the government would likely be the only source of that financing and warned that a liquidation – and the loss of up to three million US jobs – would be the likely outcome.
“The government is going to come through,” Efraim Levy, an analyst with Standard & Poor's Equity Research, said of GM's request for additional loans.
“It's too big to fail, especially in a fragile economy.”
But Levy warned there is “no guarantee” the massive restructuring plans will actually work.
The biggest threat to long-term viability is how long it takes for global auto sales to recover and how far auto sales fall in the coming months.
But the US Treasury may also be forced to allow at least Chrysler to fail if it is not able to get creditors to agree to a debt for equity swap and convince the United Auto Workers union to make major concessions on wage and health care costs.
The “extremely damaging” economic ripple effects resulting from a bankruptcy could actually make it more necessary in order to force “skeptical” creditors and the union to make concessions, Moody's Clark said in a research note.
“The government may in fact have to stand aside and allow one or more companies to make a Chapter 11 filing as a measure that could accelerate the restructuring that is necessary,” he wrote.
The Treasury has until March 31 to decide whether to extend the loans or call them in and allow the US automakers to collapse, and there is little public support for giving any more taxpayer money to GM and Chrysler.
A poll released Wednesday by Rasmussen found that 64 percent of Americans opposed providing any additional taxpayer-backed loans for the embattled automakers, and 57 percent say the government is not likely to get the money back.
“It is clear that going forward, more will be required from everyone involved — creditors, suppliers, dealers, labor and auto executives themselves — to ensure the viability of these companies going forward,” White House spokesman Robert Gibbs said in a statement Tuesday night.
There will be a great deal of brinksmanship in the coming weeks in which the government will have to threaten to abandon the automakers in order to win concessions, said Edmunds.com president Jeremy Anwyl.
But there is simply no way the government – which authorized a 700 billion dollars bailout for the financial sector and a 787 billion dollar stimulus package – will allow GM or Chrysler to fail, he said.
“Twenty billion dollars here or there is really nothing compared to what's being thrown around,” Anwyl told AFP.
“In a normal economy, sure you'd let them fail but in the current economy, the risk to employment, the risk to the supplier base, it's just not worth it.”
